1997 (1) TMI 481 - AT - Income Tax

Tribunal upholds Commissioner's decision under Income-tax Act, finding AO's assessment erroneous.

Tejinder Singh Makkar Versus Assistant Commissioner of Income-tax

Tejinder Singh Makkar Versus Assistant Commissioner of Income-tax - [1998] 229 ITR (A. T.) 82, [1997] 61 ITD 57 Issues Involved:1. Claim of bad debts of Rs. 28,77,420.2. Source of funds for the amount of Rs. 8,35,000 given by the assessee to his wife.Summary:Issue 1: Claim of Bad Debts of Rs. 28,77,420The Commissioner of Income-tax (CIT) held that the Assessing Officer (AO) allowed the assessee's claim for bad debts without proper scrutiny and verification of conditions prescribed u/s 36(2) of the Income-tax Act, 1961. The AO's assessment order mentioned that the assessee provided details of the bad debt, including the debtor's address, photocopies of delivery challans, and letters sent to the debtor. The AO also deputed a Ward Inspector who reported that the debtor was untraceable. Despite these steps, the CIT found the AO's investigation insufficient and the assessment erroneous and prejudicial to the interests of the Revenue. The Tribunal, upon appeal, found merit in the assessee's argument that the AO had conducted necessary inquiries and allowed the claim judiciously. However, upon reference to a Third Member due to differing opinions between the Judicial and Accountant Members, the Third Member upheld the CIT's view, emphasizing the need for further inquiry and investigation, thus agreeing with the Accountant Member that the AO's order was erroneous and prejudicial to the interests of the Revenue.Issue 2: Source of Funds for Rs. 8,35,000 Given to WifeThe CIT noted that the AO completed the assessment without making proper inquiries about the source of funds for the loan of Rs. 8,35,000 given by the assessee to his wife. The AO's assessment order mentioned that the assessee provided details of the interest-free loan and confirmed that the amounts were transferred from his bank account. However, the CIT found that the AO did not verify the sources of the deposits in the bank account and merely accepted the assessee's explanation without proper scrutiny. The Tribunal, upon appeal, found the AO's inquiry sufficient. However, the Third Member, upon reference, upheld the CIT's view, agreeing with the Accountant Member that the AO's order lacked proper inquiry and was thus erroneous and prejudicial to the interests of the Revenue.Conclusion:The Tribunal, with the opinion of the Third Member, concluded that the CIT was justified in invoking section 263 of the Income-tax Act, 1961, as the AO's assessment order was found to be erroneous and prejudicial to the interests of the Revenue due to inadequate inquiry and investigation into both the claim of bad debts and the source of funds for the loan given to the assessee's wife. The appeal by the assessee was thus partly allowed, upholding the CIT's jurisdiction over the matters raised in the notice u/s 263.